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Are CMHC Condo Stats Skewed?

Canada Mortgage and Housing Corp. (CMHC) has released its housing forecast for 2016 and 2017 and it’s not as rosy as homeowners have hoped. Although the CMHC doesn’t foresee a housing bubble, the crown corporation predicts housing prices will barely keep up with the rate of inflation over the next two years. This is good news for buyers… but not so great for those already in the market.

Oil Prices Impacting Some Provinces

The CMHC attributes much of the slowdown in housing to the declining price of oil. While housing activity has been given a boost from lower oil prices, a lower loonie and record low mortgage rates in Ontario and B.C., oil-rich provinces like Alberta have been struggling. The CMHC foresees the “counterbalancing effect” to slow down over time with price increases moderating.

Sales and Prices to Slow

Homeowners hoping to see their real estate values continue to skyrocket will be disappointed; CHMC predicts the average price of resale homes in Canada to reach $437,700 this year, a 7.2 per cent year-over-year increase. Beyond that, the crown corporation says the average price will reach between $420,000 and $466,000 in 2016 (a 1.3 per cent year-over-year increase) and between $443,300 and $449,600 in 2017 (1.4 per cent year-over-year increase).

While prices of resale homes will be on the rise, sales won’t keep pace. CHMC predicts sales of resale homes to fall by a modest 3 per cent next year and by under 1 per cent in 2017. It also predicts a similar trend with new home construction, forecasting declines of 4.7 per cent next year and 2.5 per cent in 2017. The crown corporation believes this will be caused by builders attempting to sell off their excess inventory.

Is the Housing Market High Risk?

CHMC’s latest Housing Market Assessment singles out four markets in particular: Toronto, Winnipeg, Saskatoon and Regina. The crown corporation singled out builders for overbuilding in those cities leading to overvaluation in prices.

In fact, Tal has said even our central bank has been fooled by the deceiving numbers reported by CHMC. Tal says once we take a closer look at the numbers, they paint a different picture.

“The big question is to what extent the condo markets in (Vancouver and Toronto) are overshooting…a good starting point is to assess the trajectory of recently completed and unabsorbed units,” said Tal. “An increase here suggests that developers are finding it increasingly hard to sell completed units — usually a first sign of troubles ahead.”

Completed Units, Not Lack of Demand, Hit Market

In Toronto, where there has been a lot of talk of a housing bubble, Tal notes that in early 2014 and 2015, when we look at the numbers, there was a spike of completed, or fully built, condominiums. In fact, in the Greater Toronto Area, there were no less than 26,000 condo completions in the first six months of 2015. That’s three times more than prior years.

When it comes to the GTA, Tal is taking a wait-and-see approach.

“To be sure, the GTA’s condo market will be tested as interest rates start rising in the coming years, and increased resale activity from domestic condo investors will result in excess supply and some downward pressure on prices,” said Tal. “But for now, those who look at the rise in unabsorbed units as a sign of increased vulnerability are barking up the wrong tree.”